Thinking about Carbon Tariffs, Retaliation and the WTO

With the Paris Agreement now moving on without the United States, carbon tariffs are no longer unthinkable–and some reports have suggested that the US could be exposed to sanctions and retaliation for contravening international norms. According to one line of reasoning, “Trump could face stiffer penalties for his decision than former presidents Bill Clinton and George W. Bush received for their U-turn on Kyoto. One way to retaliate would be to levy a border-adjustment carbon tax or tariff on American exports.”

Legally operationalizing such a tax in a nondiscriminatory manner would be challenging (assuming a border adjustment tax in itself complied with WTO law). A couple of thoughts from Simon Lester, a colleague at the Institute of International Economic Law, seem to suggest retaliation as unlikely:

“I have doubts that a carbon tariff imposed in response to Trump pulling the U.S. out of the Paris Agreement would be consistent with WTO obligations. Here’s one reason why: Taking action against only the U.S., and not all the other countries whose carbon emissions regulation fails to meet someone’s standard, would be a problem under various GATT/WTO provisions.”